Description: In December, Europe officially entered the deflationary zone, with a 0.2 per cent drop in the consumer price index. The European Central Bank is being pressured to respond to this situation. A deflationary environment, if it persists, can be very damaging if people begin to expect a future of declining prices.
Source: Globe and Mail.com
Date: January 7, 2015; updated January 8, 2015
1) What challenges do declining prices pose to an economy?
2) During the high inflationary period of the 1970’s and the 1980’s, accountants debated what the impact of changing prices meant to our “cost based” financial statements. What theoretical accounting issues might emerge in a deflationary environment?
3) The article also notes that Europeans are not as invested in the stock market as Americans. Why do you think this would be?